China does not cap carbon. China is fueling its development chiefly with coal, oil, and hydro-power, not wind and solar. Almost 80% of China’s electricity comes from coal, and China is investing billions in Canadian tar sands oil production. If China is both threat and model, won’t America fall further behind in the “economic growth race” if we wage political warfare on coal and block the Keystone XL Pipeline?
Be that as it may, from day one President Obama’s goal has been to make wind and solar power “the profitable kind of energy” by handicapping economically efficient power generation from coal and natural gas. Banking on this, Solyndra’s business plan assumed that Congress would pass the Waxman-Markey bill, with its carbon caps and renewable electricity mandates.
But then a funny thing happened on the way to the clean energy future. One month after Chu’s 2009 testimony, the Copenhagen climate conference fizzled. In 2010, Senate leaders pulled the plug on a Waxman-Markey companion bill, and the November elections nailed the coffin shut on cap-and-trade.
By Chu’s (and Solyndra’s) logic, the clean energy race, predicated as it was on handicapping carbon-based energy, should be over. Nonetheless, we hear the same old, same old. China is pumping billions into wind and solar. If we don’t do the same, we’ll become dependent on Chinese products.
This is bad advice for three reasons.
First, the easiest and cheapest way not to become “dependent” on Chinese wind turbines and solar panels is not to shoot ourselves in the foot in the first place. The Chinese are selling to an artificial market, one created by European and U.S. policies mandating reliance on high-cost, intermittent electricity sources. Get rid of these Soviet-style production quota, and we won’t be tempted to buy Chinese products!
Second, we cannot beat China in catering to this ersatz market, and cannot afford to do so even if we could.
As my colleague Chris Horner points out, America’s strength is innovation but China’s is mass production. Chinese solar panels are not more innovative than Solyndra’s — quite the contrary. But China, with its cheap labor, coal-based power, and a government free to fleece consumers and taxpayers for the benefit of favored producers (they’re communists, after all), will always be able to undersell competitors in a market where what really counts is not satisfying non-coerced customers but simply meeting politically imposed quota.
To suppose that we can subsidize our way to a level playing field is to forget that Beijing is flush with cash and Washington is broke.
Third, even China’s profits may turn into losses, because the renewable energy market looks like a bubble about to burst. As CCNet’s Benny Peiser reports, the recession and sovereign debt crisis are putting pressure on governments to scale back green energy subsidies. Spain’s Industry Ministry announced it intends to cut the feed-in tariff for wind turbines by 40%. Britain too may cut subsidies for wind farms and household solar panels. Japan, worried about the billions it is paying other countries for carbon credits, is reconsidering its commitment to cut carbon dioxide emissions 25% by 2020. Even the European Union acknowledges a “trade-off between climate change policies and competitiveness,” and is questioning whether it should press ahead with decarbonization if other countries don’t follow suit.
China is to our times what Japan was to the 1980s — an economic rival that supposedly proves the superiority of politically directed industrial policy to free markets. But Japan, Inc. turned out to be a bubble economy, with the booming 1980s followed by the “lost decade” of the 1990s.
In August, China instituted a feed-in tariff program to offset declining demand as large buyers such as Germany and Italy shrunk their subsidies for solar panels. The feed-in tariff may be enough to keep the bubble inflated, but it too is a subsidy. And subsidies consume wealth, they do not create it.